How to calculate how much you can get on a mortgage.
Thursday, June 12, 2008 @ 4:24 PM
Getting a mortgage in Spain has never really been that easy, and now things have just got a whole lot harder - 1) valuers have been told to tighten up their belts (so on average bank valuations are down about 20% to 30% from last year), and 2) the banks are now looking really closely at your paperwork, to make sure you can afford the mortgage payments. To be honest, they should have been doing this from day one.
So, for those of you thinking of buying, here are a few tips to working out your own morgage affordability before you even start looking or even think about approaching a bank
MORTGAGE AFFORDABILITY TIPS
1) Work out your real net monthly income (after all taxes, major expenses, exsiting mortgage, loans etc)
2) Divide this by three as the banks in Spain will on average lend you about 1/3 of your net monthly salary for your monthly mortgage payments.
3) This new figure will be your Real Net Monthly Mortgage Budget. (Always err on the side of caution so in the event circumstances change and interest rates rise, you know you are covered)
For example, say you are currently renting, and have now decided to buy something instead of continuing to rent. You earn about 3300 Euros per month (after tax) and say you have a car loan of 250 Euros and other major expenses of 250 Euros. That gives you a real net income of 2800 Euros. You build in 100 Euros contingency, so lets say your REAL NET MONTHLY INCOME is 2700 Euros. 2700 Euros divdided by 3 is 900 Euros. This is where the fun begins. Using the Naked Agent Mortgage Calculator you can simply enter how much you want to pay per month (eg: 900 Euros), enter the interest rate (eg: 6%) and the mortgage term (eg: 30 years).
In this case, using the calculator, you know that the banks (providing you have the correct paperwork) should be able to lend you up to about 148000 Euros in total. If you have 50000 Euros in savings, then you should be able to afford a property of 198000 Euros (including purchase & mortgage costs). Therefore you ideally need to be looking at final purchase price of around 175000 Euros
Don't forget, that the amount the banks may lend you will not only be based on your affordability but also on the valuation of the property.
However, by going through the 'affordability' process, at least you know where you stand from day 1. You'll know more or less what budget you need to be working to and what price of property you should be looking at. You can get more details in the new ebook buying guide, but for the moment have fun with the numbers.
Hasta pronto